South Africa’s Political Changes and the BRICS Development Bank

Two years ago in July 2014, BRICS states (Brazil, Russia, India, China and South Africa) came together in Fortaleza, Brazil to sign the New Development Bank (NDB) treaty. The purpose of the bank is to foster and encourage development projects within its member states, as well as other developing and emerging countries. Its initial capitalization is US$100 billion, with each member having equal shares and voting rights. Its existence has routinely been seen as a counter-weight to the International Monetary Fund (IMF) and the World Bank in the multilateral development finance arena; as an organization developed and capitalized in the Global South for the Global South. Since 2014 however, there has been little public discourse about its planned structure. Two years later it’s back on our radar, not with news coming from Shanghai where it is headquartered but from South Africa, at the African Resource Centre (ARC).

The bank was meant to open its African branch in March 2016, however there has been some confusion as to whom is to lead the bank from South Africa. The Director- General post for South Africa has supposedly been ear marked for Nhlanhla Nene, the former Finance Minister of South Africa, as announced to the South African public by President Zuma shortly after he fired Mr Nene. Four months later the post appears still to be open.

The lack of clarity in this regard, places a shadow on the NDB before it officially opens its doors on the African continent. The firing of Mr Nene in December instigated massive uncertainty in South African financial markets, causing the South African rand to devalue against major currencies dramatically. The firing is also said to have reduced the reputational credibility of the South African treasury, which is now clearly caught up in internal ANC battles.

The motivation behind placing Mr Nene in the ARC therefore appears to be one of political intent arising from South African politics rather than aimed at fostering integrity in an international organization. As there appears to be a rift between President Zuma and Mr Nene, his placement, if finalized, highlights President Zuma’s perception of the NDB, as a political entity of little consequence on a macro level. The implications for President Zuma within the international arena as a ‘champion’ for African interests in international affairs is therefore increasingly being eroded, diminishing the ‘Africa rising’ narrative the continent enjoyed over the last decade. Its significance is highlighted by the general economic slowdown and social unrest within South Africa, the second largest economy on the continent.

By stating what it does not intend to do, the bank is clearly participating in political dialogue so as to address inequities in international finance. We find ourselves asking the question, what is the bank intending to do and how? At the moment it is very unclear as to what and how the bank is going to operate. Oxfam international in 2014 issued a policy brief, The BRICS Development bank: Why the world’s newest global bank should adopt a pro-poor agenda, as to the challenges and opportunities of the incumbent bank. The brief highlights the lack of public documents that might clearly articulate the Bank’s mandate. Moreover, engagement with civil society has been low.

Across the Atlantic in Brazil, a fellow BRICS member faces similar crises of institutional confidence, wherein, lack of transparency have also been called into question: the Lavo jato scandal that has engulfed Brazil in a seemingly unending political and economic crisis. Dilma Rouseff’s tenure as President began as one of optimism for the poor and marginalized but has increasingly been weakened by corruption scandals in State owned enterprises and political parties. The recent departure of the Democratic Movement Party, the largest party of the coalition government, is a large blow to President Dilma’s government amid a dramatic economic slowdown. The silver lining in Brazil’s crisis is that the judiciary is leading the charge against corruption; a battle it may actually be winning although it is too soon to tell. What is inspiring in the Brazilian case is the judiciary’s ability to maintain its independence in matters of the state. This is an essential quality when assessing whether to have confidence in the governance of a state’s affairs. The hope is that these crises are part of the necessary reforming process for a more transparent and effective government.

Meanwhile, South Africa’s BRICs partners – Russia, India, and China – are not exactly models of transparency and effective governance either. Combining these five countries into managing what is supposed to be a mould breaking Development Finance Institution is therefore no guarantee that the promise of the NDB will be forthcoming. Indeed, the reverse may be true if current trends in South Africa and Brazil are anything to go by.

Indeed, the impending opening of the ARC unfortunately brought to the fore the potentially highly politicized nature of the NDB. This leaves us with the conclusion that if the bank develops in such a trajectory, it, will be nothing more than ineffectual platform for lofty ideas in a sea of uncertainty and an arena for political point-scoring. The internal political infighting and crises in South Africa, brings to the fore the complexity of internal politics and their spill over effect into financial markets.

The NDB will undoubtedly have its own internal politics, as a new institution. The political and economic crises in BRICS member states undoubtedly will make their ways into the NDB’s corridors. We therefore need to ask the question: was the BRICS bank started too soon to be effective? For any institution to be effective and have public confidence it must be transparent and accountable. As the Brazilian and South African economies continue in a tailspin, the credibility of emerging market economies is also being questioned.

Rather than allowing the NDB to be perceived to be no more than a platform for political idealism, the bank could do something that has not been done in the developing world in recent times: engage in a long-term transparent, transformational perspective of world politics and finance. It is an opportunity to remove the perceived barriers between capital, poverty and rights, as separate issues and rather see them as ideals to enshrine within the bank with equal merit and importance in the developing world. By being an institution within the developing world that has exceptional governance and transparency, the NDB can be an example of an international financial institution that bucks the trend in developing country politics, fundamentally strengthening financial markets. The NDB therefore, although faced with a myriad of challenges, can seek to transfer its core principles to the Governments of its members.

Commenting area

What makes the NDB different from the AfDB and the AsDB? And what makes you think that NDB will be less affected by internal politics and continental geo-politics than the other IFIs? What role has RSA played in AfDB and why do you think that RSA would take a different approach to the NDB than the AfDB?

Fundamentally, I believe the main difference is the number of members in NDB and AfDB and AsDB. With fewer members and equal stake holding, effective policy formulation can theoretically be streamlined and ensure sustained ‘political will’ in the NDB. This I believe is a key difference between other IFIs. RSA approach to the NDB will be different to the AfDB due to its representative voice in the organization as a founding member.